The Conservatives have been accused of a “selective” use of official figures after Ministers claimed take-home pay for most workers rose faster than inflation last year.
An analysis circulated by No 10 sought to counter Labour claims of a “cost-of-living crisis” by showing that all but the top ten per cent of earners saw a real terms increase in 2012/13.
Business Minister Matt Hancock said the figures showed the Government’s economic strategy was starting to work and feeding through to people’s personal finances. But Labour accused the Government of ignoring the impact of cuts to tax credits and child benefits on working families.
Paul Johnson, director of the Institute for Fiscal Studies, said that while the Government had used a “perfectly sensible” set of figures, there were “problems” with its analysis.
“First, we have other sets of data – the Office for National Statistics publishes an average weekly earnings index. That went up quite a lot less quickly than inflation in the most recent months,” he told BBC Radio 4’s Today programme.
“And, of course, they are not taking account of reductions in things like benefits which were occurring over the time. So if you are looking at household incomes, that will be different from what’s happened to take-home pay.”
He said household incomes had fallen so sharply since the coalition came to power in 2010, there was “very little chance” they will have recovered by the time of the next general election in 2015.
For Labour, shadow Treasury Minister Cathy Jamieson said real wages had fallen by more than £1,600 a year under the coalition while families were, on average, £891 worse off as a result of the tax and benefit changes.
“The Tories are totally out of touch to claim people facing a cost-of-living crisis are actually better off under them. These highly selective figures from the Tories do not even include the impact of things like cuts to tax credits and child benefit, which have hit working families hard,” she said.
“David Cameron simply doesn’t understand the cost-of-living crisis. He’s so out of touch he seems to be telling people they’ve never had it so good.”
Mr Hancock acknowledged that people were still worse off than they were before the financial crash but said the analysis – based on figures from the Office of National Statistics – showed the fall in incomes was “starting to abate”.
“I look at these figures and say things are starting to turn round,” he told the Today programme.
“Put them together with the very good jobs figures, with the record rise in the number of jobs that we had this week, with the fact the deficit is coming down – put all these things together and we can see that the economic plan is starting to work and helping to make people’s personal finances more secure.”
Liberal Democrat president Tim Farron said the increase in take-home pay was due to his party’s insistence on raising personal tax allowances.
“This is a Liberal Democrat tax cut – it was on the front page of our 2010 election manifesto,” he said. “The Conservatives’ priority was an inheritance tax cut for millionaires, Liberal Democrats’ priority was to help those on low and middle incomes.
“These figures show that the Coalition’s economic plan is the rock on which our recovery is being built. This recovery would not be happening without Liberal Democrats in Government.”
Labour leader Ed Miliband said the analysis was an “insult” to millions of people still struggling to make ends meet.
“Having had no answer to the cost-of-living crisis, today’s the day that David Cameron is actually denying its happening,” he said.